This post discusses 3 country ETF’s that are about to break out. For each trade idea, i will give you levels to alarm for entry, potential targets, and other key information to glean from the charts.
It starts with the US Dollar
It is said that if you get the direction of the US Dollar ( $USD ) right, many things fall into place. The relative strength or weakness of the Dollar is tied to so many things. Of particular interest is the relationship of the Dollar to commodities and precious metals. A falling Dollar is supportive of rising commodity and precious metal prices. The converse is also true. A higher Dollar suppresses commodities and precious metals. So lets look at the chart to see where we’re at.
The chart below is an 8 year weekly look at the $USD. The Dollar peaked in Dec 2016 at 102 and then fell to 89 over the next year. It then bounced over the next year and a half to 98 where it recently peaked. Now, it appears the Dollar is rolling over. THe RSI has fallen below 50 with momentum falling for nearly a year. More importantly price lost its 40 week ema. If the trend proceeds, I think the Dollar will find support at the major trend line down at 93 over time.
This weakening trend should be supportive of rising gold prices as well as commodities.
Commodity exporting nations benefit from a falling US Dollar
Commodity intensive exporting nations benefit from a falling dollar. The 3 countries that have my attention are Australia, Canada, and Brazil. The fortunes of these countries largely depend on commodity exports. Australia and Brazil are big iron ore exporters. In Canada, their stock market is loaded with oil producers and gold miners. While the performance of these markets is not strictly a function of the US Dollar, Dollar weakness should be a positive catalyst. Let’s look at the charts.
Australia is breaking out $EWA Weekly
As you can see on the weekly chart, price has just taken out resistance this week. The RSI and PPO indicators are bullishly positioned and are supporting the advance. What’s nice about the set up is that traders have a clear line to shoot against on the long side. $22.25 is a great line in the sand where traders can stay long against. Anything above $22.25 is bullish. If price falls below, it would be time to re-assess. Very little downside to getting long here.
Canada – on the verge $EWC Weekly
From the chart, you can see price is up against resistance as are the RSI and PPO indicators. Set an alarm for yourself at $28.75 and wait patiently. No need to front run this, make price prove it can break out. A breakout of RSI and PPO would be a nice confirmation of the move. THe posture of the indicators is bullish. We might see a breakout this week.
Brazil – Explosive move coming? $EWZ Weekly
As a chartist, I get excited when I see a chart like this. A giant cup and handle set up with price about to break out. The formation, once executed, projects a $15 upside move. Given the all time high was $64 back in 2009, a move to $59 doesn’t seem ridiculous.
One of the things I really like about the set up is the posture of the PPO indicator. Notice the bull cross near the zero line. THat is a very bullish set up. Momentum has re-set and is not over extended. Plenty of room to move to the upside. Similarly, RSI is bullish but not over-cooked. Again, no benefit or need to front run the breakout. Set your alarm at $44.50 or $45 and be patient. If / when the breakout comes, you can get long and have a great layer of support just below where you can set up a stop.
About Gold and Gold miners ( $GLD / $GDX )
Unless you’ve been living under a rock the past few weeks, you already know gold is breaking out of a 5-6 year base. While it is not the focus of this post, a falling Dollar is supportive of rising gold prices. We’ll have to watch to see if gold will again break hearts or if this breakout is the real deal. It is said the “the longer the base, the higher in space”., meaning long bases lead to big moves higher once the breakout comes. A move to the prior highs of $1900 can’t simply be dismissed. It is an exciting time to watch gold!
While I am not opposed to trading the metal, right now the miners are outperforming the metal. Traders should keep the gold miners on the radar. $GDX is an ETF of the miners and $GDXJ is an ETF of the junior miners. I have long positions in $GDX as well as Kirkland Lake $KL and Newmont Mining $NEM. Gold, like any other index or stock, won’t go straight up, but if the stars align, the Dollar keeps falling, and the gold bugs come out of the woodwork it cold be an exciting ride higher. Stay tuned!!
Pulling it all together; Final Thoughts
It’s important to note that in the examples above we are using weekly charts. Weekly trends and breakouts hold much more technical weight than it would for a daily chart. These are set ups that have the potential to run for months. While no trade is set it and forget it, if these trades trigger you’ll have a clear go / no go line to shoot against and logical location to set a stop and from that point are low risk.
Another point to make is that commodities like gold, oil, coffee, grains etc are not correlated to the stock market. That diversification is a nice element to add to a portfolio. If the Dollar continues to fall, it may be time for commodities to shine after having been wandering in the desert for years. At the very least, its time to put a few commodities on your radar.
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Notes:
These are ideas and set ups. Please double check when earnings are set to be announced because the earnings reaction has the potential to torpedo any technical set up that may exist.
Also, set you stops according to your own risk tolerance. The ones I have provided are to be used only as a guide. The most important aspect of your stop is to honor them. Some trades work, some don’t. Honoring your stop will ensure your loss on a failed trade will be minimal.
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